Rooting For Class III Milk Prices To Move Higher In The New Year? Here's What It'll Take
U.S. Farm Report 12/02/23 - Roundtable 1
The milk markets have faced extreme headwinds this year. As milk prices remain low, it’s also causing producers to scale back on production. Simple economics says if milk supply is down, milk prices should be higher. But according to Phil Plourd, president of Ever.Ag insights, the dairy markets are in uncharted waters at this point.
“I think that for the first time in the years that we've been looking at dairy markets, we've never really seen a situation where supply was not great and probably headed lower. But demand has been equally or not up to the task either,” Plourd says. “And so in a vacuum, if you said, ‘Hey, U.S. milk production is down to half a percent, Europe is barely breakeven and New Zealand's not doing well, what's the milk price?’ I'd say, ‘Well, it's going be $20 or something like that.’”
The reality is Class III milk futures are hovering around $16 cwt today. Plourd says even though milk supply is down, export demand is also down, which is keeping milk prices low.
“The fact is we do not have oversupply anywhere in the world right now. But we have a lot of under demand. And that's been really holding the markets back,” says Plourd. “I don't think the supply is going to get any better anytime soon. But the demand has to pick up if we're going to see some fireworks.”
The dairy market has a demand problem, according to Lucas Fuess, senior dairy analyst with Rabo AgriFinance. That’s largely on the export side of the business.
“If you look at the health of the consumer in the U.S., if you look at our foreign markets, which are a big share of where we're exporting almost 20% of our product to, we're seeing signs of worrisome demand all around the world,” Fuess says. “And like Phil said, I think it is almost kind of miraculous when we look at the U.S., the European Union or New Zealand. All these key areas, it’s nice to not have a burdensome oversupply. So, it's up to demand to pick up to be able to see significant milk price recovery in the future.”
Watch the full discussion on U.S. Farm Report from the 2023 Milk Business Conference.
